Euro rise hits car sector

European shares fell yesterday as the euro rallied to a 1-1/2-year high, hurting the export reliant car sector, while investors sold insurers on fading hopes of consolidation.

The biggest sector loser was the DJ Stoxx auto sector index, which fell almost two per cent as heavyweights DaimlerChrysler, BMW and Peugeot all took a hit.

Among other standout decliners were insurers, including Prudential and Old Mutual which dropped about two per cent. Traders cited the dropping off of bid speculation that has swirled around the sector in recent weeks.

By 1232 GMT the pan-European FTSEurofirst index of 300 leading shares fell one per cent to 1,447.38 points, after hitting a three-week intraday low. The index is still up almost 15 per cent since the start of the year.

Around Europe, London's FTSE 100 was down 0.8 per cent, while the French CAC 40 dropped 0.9 per cent and Germany's DAX was down 1.3 per cent.

Heinz-Gerd Sonnenschein, analyst at Germany's Postbank, said the long-term view was still positive.

"The reaction is too strong, and that's because Wall Street is missing," he said, adding that he expects US market volumes to be low a day after the Thanksgiving holiday.

"I interpret this as a healthy correction," Frank Schallenberger, market analyst at German state bank LBBW, said.

"When the dollar gets a dizzy spell, obviously everything to do with exports suffers, especially cars," he said.

The euro rose to a 1-1/2 year high versus the dollar, extending gains rapidly after breaching the key $1.30 level.

By 1224 GMT, the euro had risen as high as $1.3109. The dollar also hit its lowest level against the yen in nearly three months at 115.62 yen.

"I think the euro could settle at around $1.30. As long was we don't go towards $1.40 this shouldn't be a big burden," Mr Schallenberger said.

Gerard Piasko, Chief Investment Officer at Julius Baer Private Banking, added: "I don't think it will go to $1.40."

The strong euro, which gained on Thursday on the back of a rise in German business confidence, increased the likelihood of more monetary tightening by the European Central Bank.

European aerospace group EADS shed 1.2 per cent after an industry source said disagreement over the funding of a $10 billion new plane project at Airbus forced the parent firm EADS to cancel a Friday board meeting.

Shares in Britain's Fuller, Smith & Turner Plc, the brewer of London Pride, fell more than four per cent after its chief executive said they would consider making larger acquisitions following the successful purchase of George & Co last year.

German industrial firm Siemens fell two per cent after its labour union said a deal to support employees of its former mobile phone unit, which it had sold to Taiwan's BenQ, would cost the firm around €140 million following the insolvency of BenQ's German mobile business.

On the up side, Italian airline Eurofly rose nine per cent, extending gains driven by speculation about a tie-up, traders said.

French energy services group Technip rose eight per cent after newspapers reported that Saipem, a unit of Italian energy firm Eni, could launch a €6 billion bid for it. Technip said it had not been contacted by Saipem or Eni.